The New England states, can no longer afford to spend scarce resources on tax credits and other business giveaways. Instead, the region needs to focus its economic development efforts on rebuilding neglected infrastructure and improving education for people at all levels, from pre-school youngsters to older adult workers.
Those are the conclusions of a new study released by economist Jeffrey Thompson of the Political Economy Research Institute (PERI) at the University of Massachusetts, Amherst. Thompson’s paper is based on his extensive analysis of research on what works and doesn’t work to create jobs and strengthen state and regional economies. It suggests a better approach to economic development, one that the New England states should pursue as they slowly dig out from the Great Recession that began in late 2007.
According to Thompson, the New England states have for too long viewed funding for public services and economic development as competing interests. That’s a false dichotomy, he says.
"In many cases the most effective options for creating jobs are the same options that support public services," Thompson says inPrioritizing Approaches to Economic Development in New England: Skills, Infrastructure, and Tax Incentives. "Spending and investing in areas at the core of the public sector mission—providing education and maintaining infrastructure—are effective at creating jobs in the short term and building prosperous economies over the long term . . . . The tax-cuts-and-business-subsidies approach to economic development, on the other hand, will do little to create jobs in the short run, and is not the most effective approach to generating growth over the long term."
The study provides ample evidence that infrastructure (roads, bridges, dams, energy transmission systems, drinking water, etc.) and education are effective approaches for creating jobs and generating economic growth in the state and region. Many of these activities — road and bridge repair in particular — bring in matching funds from the federal government as well as triggering investment from private businesses. And by necessity, infrastructure repairs employ local workers and local materials: it’s just not possible to have an underground water main located in Providence replaced in China.
These activities would be simultaneously meeting an increasingly urgent need: the evidence reviewed by Thompson shows that in New England, 40% of bridges are structurally deficient or functionally obsolete; most roads are in poor or mediocre condition, and drinking water infrastructure is in need of $12 billion worth of repairs and renovations over the next 20 years.
Thompson goes onto demonstrate that investing state funds — even when scarce — in education not only helps attract business to the state, but has been found to raise gross state product, increase employment in metropolitan areas, and raise personal income. In the shorter term, education spending is one of the strongest job-creation engines there is: each million dollars spent by the states creates between 25 and 39 jobs for teachers, aids, custodians, nurses, professors, bus drivers, and others.
Unfortunately, Thompson describes how, instead of making these investments, state policymakers are too often turning to corporate tax breaks to lure businesses, and public subsidies for employers who promise to hire workers. These policies have been tried for decades, but the evidence suggests that these tax subsidies — to which the region dedicates billions of dollars each fiscal year — just don’t work.
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